HURRICANE KATRINA: THE OIL SUPPLY; GAS PRICES SURGE AS SUPPLY DROPS

By JAD MOUAWAD and SIMON ROMERO; Robert W. Dalton, in Spartanburg, S.C.; Brenda Goodman, in Atlanta; and Vikas Bajaj, in New York, contributed reporting for this article.

Published: September 1, 2005

For the first time since the 1970's, gasoline lines reappeared yesterday in some corners of the country.

Three days after Hurricane Katrina dealt a devastating blow to the nation's largest energy hub, the worst-case possibility was quickly becoming a reality: gasoline prices surging well above $3 a gallon, with some consumers complaining of price gouging; service stations in a handful of locations running out of gas; drivers rushing to fill their tanks, only to find themselves waiting in line with others.

After the sudden drop in oil supplies, gasoline sellers were quick to raise their prices. While gasoline averaged $2.60 a gallon earlier in the week, unleaded regular gas was selling yesterday at $3.09 at stations in West Palm Beach, Fla.; $3.49 in Indianapolis; and $3.25 in San Francisco. Premium fuel was going for up to $3.89 a gallon in Chicago.

Shortages and gasoline lines were reported in parts of South Carolina, the Dakotas, Arkansas and Kentucky.

The White House responded yesterday by saying it would release oil from the nation's emergency stockpiles to meet shortages and would relax environmental standards nationwide so that refiners could produce more -- but dirtier -- gasoline.

''A lot of crude production has been shut down because of the storm,'' President Bush said outside the White House yesterday after returning from his vacation in Texas. ''Our citizens must understand this storm has disrupted the capacity to make gasoline and to distribute gasoline.''

In response to the White House announcement, the price of crude oil fell in trading yesterday to $68.94, from $69.81, and the stock market rose as traders looked for signs of relief.

Still, most analysts said that neither move by the federal government was likely to produce much gasoline in the short term or bring prices down anytime soon. The problem is not any immediate shortage of crude oil but rather that crucial oil product pipelines and refineries in the gulf region are unable to operate.

The impact from the hurricane is likely to be felt nationwide for months. Some economists suggest that the disruptions could shave at least one percentage point from a fourth-quarter growth rate that most analysts, until the disaster, expected to reach roughly 3 percent.

Moreover, if oil prices remain around $70 a barrel or higher, they could put the Federal Reserve in an increasingly unpleasant position, caught between the desire to keep inflation low and the pressure to prevent an economic downturn.

The storm, which submerged New Orleans after it slammed into the Gulf of Mexico on Monday, crippled substantial portions of the country's energy infrastructure. In Louisiana, Mississippi and Alabama, electrical power was out, refineries were drowned, and most of the offshore production of oil and gas had not resumed.

While crude oil prices fell, gasoline futures on the New York Mercantile Exchange soared for a third day as traders and analysts tried to determine the severity and duration of the supply disruptions.

Energy industry officials said the sharp jump in prices was an inevitable market reaction to fears that the only way to balance continued strong demand with tighter supplies was through higher prices, which would serve to keep some drivers from taking extra trips. They said price controls would only make the situation worse by discouraging production.

The government started receiving reports of price gouging at the retail level and said the complaints would be turned over to the Federal Trade Commission for investigation. ''We have gotten a number of people concerned about the prices,'' said Craig Stevens, a spokesman for the Energy Department.

And Reuters reported that Georgia's governor, Sonny Perdue, signed an order to punish gasoline sellers who gouge customers, amid complaints that prices in some cases had risen to $5 a gallon.

Mark N. Cooper, the research director with the Consumer Federation of America, said the issue was not gouging.

''This is the result of the complete and total neglect of the petroleum industry,'' Mr. Cooper said. ''Refiners are vulnerable, overstretched and not very competitive. Gouging is not the problem. It's a symptom of an underlying disease.''

Throughout the South and Midwest, service stations were beginning to experience some shortages in areas where gasoline is usually transported by pipeline from the gulf. Nearly two million barrels a day of refining capacity has been knocked out by the storm and could take weeks to return.

''There are risks of pockets of shortages in various parts of the country,'' said Edward L. Morse, an executive adviser at Hetco, a New York-based oil trading company. ''There should be no gasoline lines in New York and New England, or California, but inland markets, like parts of Illinois, Tennessee, Kentucky or Missouri, Memphis and Atlanta, are vulnerable.''

''Lines are hard to predict,'' Mr. Morse said, because they typically occur ''when consumers want to top off their tanks because they're afraid of gas lines.''